A tax meant to counter the effect of a negative externality is called:
A) a Coase tax.
B) a Pigovian tax.
C) an external tax.
D) a social benefit tax.

Question

Quizplus · Accepted Answer

A Pigovian tax is a tax implemented to counteract the negative effects of a negative externality, such as pollution, by making the producers involved pay for the harm they cause to society. The goal is to internalize the cost of the negative externality by making the producer pay, and thus create a more efficient market outcome. Therefore, a Pigovian tax is the most appropriate choice.

A Tax Meant to Counter the Effect of a Negative